Precautions to be taken while recording statements u/s 132(4) of the income Tax Act, 1961 including admission of undisclosed income - Income Tax - F.No. 286/98/2013-IT(Inv.II)

F.No. 286/98/2013-IT(Inv.II) Government of India Ministry of Finance Department of Revenue Central Board of Direct taxes Room No. 254, North Block New Delhi, the 9th January, 2014 To All Directors General of income Tax (Inv.) Director General of Income Tax (I CI), New Delhi Sub : Precautions to be taken while recording statements u/s 132(4) of the income Tax Act, 1961 including admission of undisclosed income- Reg. Sir/Madam, Search and seizure is one of the most important and potent tool for collection of valuable evidence of undisclosed income. It is expected that assessments in search cases would normally not only result in detection of undisclosed income but also culminate in levy of penally for concealment of income and prosecution for willful attempt to evade taxes and thus, such actions would act as a deterrent against tax evasion. 2. It has been observed that undisclosed incomes reported initially in some of the searches as admission did not result in sustainable additions, much less levy of penalty and launching of prosecution. One of the reasons for such a situation appears to be undue emphasis of admission on undisclosed income rather than collection of evidence during the searches. 3. This issue had invited attention of the Board even in the past and guidelines issued vide F. No. 286/2/2003- IT (Inv. II) dated 10/03/2003 emphasized on the need for focusing on collection of evidence during search and seizure proceedings rather than admission of undisclosed income. Instances have come to the notice of the Board wherein admissions of undisclosed income u/s 132(4) of the Income Tax Act, 1961 ( the Act ) were retracted subsequently and/or additions based on such admissions could not be sustained in appeals as the same were not based upon material/cogent evidence. Such instances adversely affect the productivity of intrusive actions. 4. In view of the above, it is reiterated that the searches should focus on collection of evidence regarding undisclosed incomes and assets rather than mere admission of undisclosed income. The DsGIT and DsIT may guide their officers accordingly. 5. While recording of statement u/s 132(4) of the Act would depend upon facts and circumstances of each case, the following issues, among others, need special attention. 5.1 Examination u/s 132(4) of the Act needs to be exhaustive. The persons should be confronted with all important documents/evidence and examined thoroughly on the contents of the incriminating documents, facts arising out of statements of connected persons, source of undisclosed assets/nature of undisclosed transactions detected during the course of search. Efforts should be made to bring out maximum possible information which will be relevant not only in the proceedings in the case of the searched person, but also in respect of consequential/connected cases of other persons with whom such undisclosed transactions have been detected during the course of search. 5.2 Admission of undisclosed income. if any, by a person should invariably be based upon material/cogent evidence [documents, assets seized and/or found or statements of connected persons or results of enquiries or any other discrepancy noticed during search]. A mere statement making admission of undisclosed income without specifying and substantiating the manner in which the admitted income has been derived may not serve the intended purpose. Attention is also invited to the definition of undisclosed income and other ingredients of Sec 271 (1)(c) and Sec 271 AAB of the Act in this regard. 5.3 The processing DDIT(Inv.)/ADIT(Inv.) of the case shall, as far as possible, ensure that copies of all incriminating seized documents/statements of connected persons/results of enquiries etc. from different premises are confronted to the person(s) making admission of undisclosed income. 5.4 Admission of undisclosed income in a statement u/s 132(4) should be followed by questions on the following lines: a ) The quantum of undisclosed income admitted with specific reference to the documents, assets seized and/or found or statements of connected persons or results of enquiries or any other discrepancy noticed (specify the same) during search etc., on which, such admission of undisclosed income is based. b) Name(s) and address(es) of the assessee(s) in whose cases the admission is made and the capacity in which such admission is being made. c) The years for which the admission is made. d) The manner in which undisclosed income has been earned along with its substantiation. 5.5 The leader of the Search team, while filling in Col. No. 9 of the Authorised Officer s report (to be submitted in the format prescribed at Annexure 42 of Search and Seizure Manual, 2007 [Vol.II], should invariably indicate the basis of admission of undisclosed income, if any, along with the relatable financial years and persons concerned. 6. Besides the above, the following issues need also to be kept in view in respect of recording of statements u/s 132(4) of the Act: 6.1 Statements u/s 132(4) of the Act must be recorded from all the persons in whose names warrants of authorization have been issued. Where the searched person is a HUF/ Company/Firm/AOP/BOl/Trust, etc, the identity and designation of the person making the statement must be recorded. Further if such person is not the one who is mentioned in Sec 140 of the Act with regard to the HUF/Company/Firm/AOP/BOI/Trust, etc., such statements, in so far as they relate to disclosures and other crucial issues, must be got confirmed u/s 132(4) by a person competent to do so. 6.2 Oath should be administered before commencing the statement of the deponent. It should be recorded in the statement itself that the deponent has been administrated oath and is made aware of the consequence under Indian penal Code, 1860 and Income Tax Act, 1961 of testifying falsely during examination. 6.3 The language used for recording the statement should be carefully chosen which the deponent can read and understand. This faet of the deponent being able to read and understand the language should be incorporated in his statement itself. 6.4 The time of commencement of examination should be noted at the start of the statement. In case, the examination of the deponent gets prolonged, and the deponent needs a break, the statement may be temporarily adjourned and this fact should also be documented in the statement along-with the time at which, the statement was temporary halted. The time of recommencement of examination should also be recorded in the statement. 6.5 Questions should be asked in simple language and the replies of the deponent should be reduced in writing in his exact words. Any complex/technical words used by the deponent must be clarified and elaborated so that the import of those words is clearly brought out in the statement. 6.6 All the end of the statement, the deponent must verify than the statement has been read over by him, which is correctly recorded and that he has testified without any threat, coercion, fear, undue influence, inducement etc. 6.7 If any deponent refuses to sign the statement, that fact must be recorded and the signatures of the witnesses may be obtained regarding this fact. 7. The above guidelines may be brought to the notice of all concerned for due compliance. (Rajat Kapoor) Under Secretary (Inv.II),CBDT